Development agreement transfer rules: capital gains may arise on possession, while deemed consideration and exemption claims need fresh review.

Execution of a development agreement may constitute a transfer for capital gains purposes where possession is effectively handed over and the arrangement falls within section 2(47)(v) read with section 53A; on these facts, capital gains were treated as arising in the relevant year. The computation of deemed consideration, however, required fresh examination because it had to be based on fair market value as on the date of transfer, with proper regard to stamp duty value. The assessee's claims on joint ownership, the effect of a registered partition deed and ratification deed, and eligibility for exemption under section 54F also required reconsideration by the assessing authority.

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Issues: (i) Whether execution of the development agreement amounted to a transfer giving rise to capital gains in the relevant assessment year; (ii) whether the computation of deemed consideration and the assessee's entitlement to apportionment and deduction under section 54F required fresh examination.

Issue (i): Whether execution of the development agreement amounted to a transfer giving rise to capital gains in the relevant assessment year.

Analysis: The development work had commenced after the agreement and approvals had been obtained, making the plea that possession was not handed over unacceptable on the facts. The arrangement was therefore treated as a transfer by part performance, attracting the capital gains provisions in the year of the development agreement.

Conclusion: The issue was decided against the assessee.

Issue (ii): Whether the computation of deemed consideration and the assessee's entitlement to apportionment and deduction under section 54F required fresh examination.

Analysis: The consideration could not be based on the developer's construction cost and had to be determined with reference to the fair market value on the date of the agreement, with due regard to the stamp duty value. The assessee's claim that the property was jointly held and that a registered partition deed and ratification deed affected the allocation of capital gains also required proper consideration. The claim for exemption under section 54F likewise had to be examined in accordance with law.

Conclusion: The issue was decided in favour of the assessee for reconsideration by the assessing authority.

Final Conclusion: The appeal succeeded to the extent that the computation of capital gains and related exemption claims were set aside for fresh adjudication, while the finding that a transfer had occurred in the relevant year was upheld.

Ratio Decidendi: In a development agreement, transfer for capital gains purposes may arise where possession is effectively handed over and the arrangement falls within section 2(47)(v) read with section 53A, and the deemed consideration must be computed on the fair market value as on the date of transfer with proper regard to the ownership structure and statutory exemptions.

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